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Inflation target adjustments: Does an improvement in institutional or economic preconditions matter?

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  • Dooyeon Cho
  • Husang Kim

Abstract

This paper investigates how the commitment to maintain an established inflation target as opposed to changing it depends on the extent to which institutional or economic preconditions improve in a country. For 19 inflation‐targeting countries, we show that stronger operational commitment to the preannounced target is pronounced in countries with a greater improvement in institutional or economic preconditions, such as central bank independence, inflation, government indebtedness, financial development and central bank credibility. Our results also highlight the heterogeneous contingencies for the discretionary behaviour of adjusting the target, including the gradual disinflation phase, fiscal dominance and the transition to flexible targeting.

Suggested Citation

  • Dooyeon Cho & Husang Kim, 2024. "Inflation target adjustments: Does an improvement in institutional or economic preconditions matter?," International Finance, Wiley Blackwell, vol. 27(2), pages 129-179, August.
    • Handle: RePEc:bla:intfin:v:27:y:2024:i:2:p:129-179
    DOI: 10.1111/infi.12448
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